Russian and Ukrainian stock promotion deals appear designed to duck provincial regulations

In three previous columns, I described how Faiyaz Dean, a securities lawyer who is licensed to practise in B.C. and Washington state, has helped a dozen fledgling companies run by Russian and Ukrainian nationals go public on the OTC Bulletin Board in the United States since April 2008.

All these companies are shams. They have goofy business premises, negligible capital, and directors and officers who appear unqualified to run public companies. It's clear to me that the real game is to create shell companies that are tightly controlled and easily manipulated, which makes them perfect vehicles for future promotions. Such shells -- which are basically loaded guns -- can fetch $400,000 US or more on the street.

Dean's IPO clients have many people in common with other IPOs that have been taken public on the bulletin board with the assistance of Vancouver lawyer Penny Green and Spokane lawyer Conrad Lysiak. In many cases, these people in common are associated with Russian promoter Sergei Stetsenko.

Stetsenko was born in the U.S.S.R. and claimed to have worked as a bodyguard for senior Soviet military officers. He is an expert marksman and boxer, and although small in stature, an intimidating figure.

He first appeared on Howe Street in the early 1990s. Since then, he has floated numerous stock deals on the bulletin board that have ended badly for investors. He now lives in Zurich and his name rarely appears in disclosure documents, but there are numerous signs he is still active in the Vancouver market.

In May, Dean filed a registration statement with the U.S. Securities and Exchange Commission for Loran Connection Corp., which is based in Odessa, Ukraine. The company says it plans to provide services to tourists.

The president is listed as Larysa Dekhtyaruk, 51. She runs a foster home for orphans in Odessa. As of March 31, the company's total assets were only $21,662. This suggests to me that Loran is not a very serious business venture.

The registration statement makes no reference to Vancouver, but an Internet domain search shows the company's website (www.lorantour.com) is registered in the name of Alexander Balykin, who lives at 5729 Nanaimo St. in Vancouver.

Balykin's son is Artiom Balykin, a UBC commerce graduate who has been active in the Vancouver nightclub scene and has some interesting connections with the Vancouver penny stock market.

His wife is Elena Advasseva, a broker at Global Securities in Vancouver. Until last fall, she worked as an assistant to Global Securities broker Scott Lower. She and Lower were also seed shareholders in Novori Inc., a Surrey-based online jewelry retailer that, with Penny Green's assistance, was ushered onto the bulletin board in 2005.

Last October, Vancouver police filed search warrant information accusing Lower and two other promoters of providing secret commissions to an undercover FBI agent posing as a broker who could muster wealthy clients to buy Novori shares. No charges have been laid, but Lower is no longer working as a stockbroker.

In 2007, Artiom Balykin floated his own IPO, Tag Events Corp., on the bulletin board. Tag's purported business was organizing music events at local nightclubs, but it, too, was a sham. It quickly morphed into a Chinese company called Deer Consumer Products Inc.

Tag's registration statement listed Artiom Balykin's address as 704-1155 Beach Ave., which is the same address Stetsenko has used in disclosure filings. I am sure this is no coincidence.

Artiom Balykin -- and by extension, Stetsenko -- may also be operating behind the scenes for another one of Dean's Russian clients, Rivulet International Inc.

In March, Rivulet filed a registration statement stating that it intends to export cars from the United States to Russia. Rivulet's president is listed as Vladimir Vysochin, a dentistry graduate who is said to be in the business of buying and selling spare parts for Japanese cars. As of April 30, its total assets were just $37. Once again, this has all the earmarks of a sham business.

Rivulet's registration statement makes no reference to Vancouver, except that the company's accounting firm, De Joya Griffith & Company of Henderson, Nev., addressed its audit report to Rivulet's board in "Vancouver, B.C."

Upon further inquiry, I have learned that the auditor is sending Rivulet's correspondence to 802-1239 West Georgia, which is (or was, until very recently) occupied by Balykin's wife, Elena Advasseva.

So what we have here are two of Dean's IPO's clients -- Loran and Rivulet -- which are said to be based in Ukraine and Russia, but which may be run by Stetsenko nominees in Vancouver.

Why go through this ruse? The answer may be that last September, the B.C. Securities Commission decreed that any bulletin board company with a "substantial" connection to B.C. must become a reporting issuer in the province. In many cases, companies are undergoing a cosmetic restructuring to give the impression that they have no substantive links to B.C.

In the case of Loran and Rivulet, it appears that their presidents -- Dekhtyaruk and Vysochin -- are presidents in name only. This certainly seems to be the case with another Stetsenko-related company, Ardent Mines Ltd.

In 2003, Spokane lawyer Lysiak filed a registration statement for Ardent, a Burnaby-based mineral exploration company. Reg Handford, a long-time Stetsenko associate, and a Ukrainian national, Taras Chebountchak, were listed as senior officers and controlling shareholders.

By early this year, both men had left the firm, and Urmas Turu of Estonia was listed as the sole officer and director. The control block of shares had ostensibly been split among many small entities. The largest interest was held by Corporate Resource Group Inc., whose address is listed as 125A-1030 Denman St. in Vancouver.

Last week, I received an e-mail from Hannes Sarv, a journalist at the Estonian business daily newspaper Äripäev. He said he had interviewed Turu, and Turu had expressed surprise that he is listed as Ardent's chief executive, and that Ardent's head office is listed as his home in Estonia.

"He said he gave his signature to buy some stocks of Ardent Mines Ltd. to his relative, Mr. Robert Jarva," Sarv told me.

This was very interesting information. Robert Jarva is a long-time associate of, and nominee for, Stetsenko. He is also listed as the sole director and officer of Corporate Resource Group, the firm's largest shareholder, whose address on Denman Street is actually a mail drop.

All of which begs several questions: First, are the people who purportedly preside over these Russian and Ukrainian deals just front men? If so, to what end?

And finally, the usual question, where is the B.C. Securities Commission in all this?

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